A Bank Has Liabilities of $4 Million with an Average

question 8

Multiple Choice

A bank has liabilities of $4 million with an average maturity of two years paying interest rates of 4 per cent annually. It has assets of $5 million with an average maturity of 5 years earning interest rates of 6 per cent annually. To what risk is the bank exposed?

• A) reinvestment risk
• B) refinancing risk
• C) interest rate risk
• D) refinancing risk and interest rate risk

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Definitions:

Bailee

A person or entity who is given temporary possession but not ownership of personal property by another for a specific purpose.

Insurer

A company that provides insurance policies to individuals or entities, offering financial protection against specified risks.

Common Carrier

A company or entity that provides transportation services to the general public under the regulation of government authorities.

Damaged Goods

Items that are physically harmed, impaired, or lessened in quality, making them less valuable or undesirable.